Employee ownership (EO) is an increasingly important form of company ownership in Britain.  Employee-owned firms are now found in many sectors, including retail/wholesale, ancillary health services, social care, business consultancy, and manufacturing.  The development of employee ownership has escalated since 2010, and we estimate there are 300-400 firms with substantial employee ownership (defined in the report as 25 per cent or more ownership by all or most employees). 

Three main structures of employee ownership are found in Britain.  The first is a trust-based model, exemplified by the John Lewis Partnership.  Here ownership is vested in an Employee Benefits Trust (EBT) acting on behalf of the employees.  The second is where ownership is held directly by employees, who either purchase or are granted shares in the company.  The third is a hybrid of trust and direct share ownership.  As in the US ESOP, shares are often initially held in trust and then passed to employees over time (often using a Share Incentive Plan). 

A variant of direct ownership is the membership model whereby employees become members of the company by each purchasing a single share.  This is found in workers’ co-operatives and the public service ‘spin-outs’ from government, local government, and the National Health Service.  In some instances, service users also become members.  For instance, Explore – the spin-out of library services from the City of York Council – will become two-thirds owned by members of the community and one-third by its staff. 

In our survey 23 per cent of EO companies use an EBT, 40 per cent use direct share purchases or allocations by employees, and 37 per cent use a combination of an EBT and individual, directly-owned shares.  The average level of EO is 83 per cent. 

The choice of the most appropriate ownership structure is a source of continuing debate.  Advantages of the trust-based model include a low reliance on employee wealth and liquidity for ownership conversion, and a lower level of risk for employees.  It may also contribute to greater sustainability of employee ownership.  Against this, advocates of direct ownership argue that individual share ownership promotes more responsible and meaningful ownership.  The hybrid model may embody the best of both worlds.              

The survey shows four main contexts in which employee ownership is typically created: business succession (31 per cent of cases), privatisation (22 per cent), a concern to share ownership where human capital is especially valuable (26 per cent), and start-ups (21 per cent).  No rescue conversions are observed in our survey: this reflects the profound barriers to creating employee ownership when firms are in distress.   

Why has employee ownership become more prevalent?  The answer lies in a combination of long-term contextual developments and more short-term factors.   Political support for employee ownership is clearly a major influence amongst the latter. 

Longer-term factors favouring employee ownership include the shift from manufacturing to services in advanced industrial economies.  This has favoured the development of firms that are rich in human capital and less dependent on physical assets for the generation of value.  Firms dependent on human capital need to attract, retain, and develop high quality human resources to achieve competitive advantage.  It is notable that employee ownership is spreading amongst ‘human capital’ firms providing business consultancy, architecture, and engineering design services, with some world-leading firms such as Arup owned by or on behalf of their employees. 

A second development is increasing economic and employment insecurity.  Globalisation, competition, and deregulation have made it increasingly difficult for firms to offer the implicit guarantees of long-term employment, career progression, and social benefits that became common after the Second World War.   But how can firms achieve employee commitment, more important than ever given the growing dependence on human capital, when less can be committed in return.   Employee ownership signals commitment by companies to their employees by providing participation in profits and control (Pendleton and Robinson 2011).

Government policy initiatives have a clear influence on the extent of employee ownership.  In 2012 the Government initiated a major review (the ‘Nuttall Review’) of employee ownership to consider the barriers to employee ownership (Nuttall 2012).  This led to a series of measures in Finance Act 2014 promoting trust-based forms of EO.    Owners selling 50 per cent or more of their company to an Employee Ownership Trust were exempted from capital gains tax, whilst firms with at least 50 per cent trust ownership became able to award tax-exempt profit shares to employees. 

Privatisation is the other main government activity that has stimulated employee ownership.  Recent privatisation initiatives, implemented by the Conservative-Liberal Coalition Government from 2010 but initiated by the Labour Government preceding it, have involved divestment of local authority, national government, and National Health Service activities into ‘public service mutuals’.  Over 100 ‘mutuals’ have now been spun-out.  Examples include children’s social care, youth services, and libraries, as well as healthcare.   

Although all major political parties support employee ownership, policy initiatives by the Coalition Government are unprecedented.  They are perhaps best explained by competition between the two government parties, with the Liberal Party keen to implement policies that give it a distinct identity within a government in which it is a minority member.   Policy experts, lobbyists, and ‘flagship’ employee-owned firms, aided by ‘policy entrepreneurs’ in the employee ownership community, have been able to exploit this competition to push employee ownership further onto the political agenda.


Nuttall, G. (2012).  Sharing Success: The Nuttall Review of Employee Ownership.  London: Department of Business, Innovation, and Skills.

Pendleton, A. and Robinson, A. (2011) ‘Employee share ownership and human capital development: complementarity in theory and practice’, Economic and Industrial Democracy 32 (3): 439-458.

The report can be downloaded from www.wreoc.org  If you work for an employee-owned firm and would like to participate in the survey please contact [email protected] or [email protected]